FICC-like revenues have been cause for worry at a lot of top banks this year. But at least one area within that category has been hot: Commodities trading. It's something that has rebounded nicely, though it remains to be seen whether commodities revenues can provide a stable medium-term boost that banks desperately need.

Top banks like Goldman Sachs, JP Morgan, Morgan Stanley and others raked in $2.7 billion in commodity and other trading revenue in the first quarter, the highest in at least two years, according to OCC data. That was 67 percent higher than in the fourth quarter of 2010 and 33.3 percent higher than in the first quarter a year ago. The total was the highest since the OCC began breaking out the holding company data in early 2009, notes Reuters.

This follows a tough year. In 2010, commodity trading revenues at the U.S. banks fell by 50 percent to $5.5 billion. We've seen some big runs in various commodities markets, especially metals, so it's not hard to believe that a big bump took place in the first quarter. The big question here is whether this is at all sustainable. Some markets may be heading for some fast deflation and that will ultimately hit revenue.

All this has to be taken within the context of the larger trading environment, which in general is more fixed income oriented. There is ample reason to believe that fixed income trading revenue and currency trading revenue will continue to weaken the likes of Goldman Sachs. Volume and volatility has been weak in both. Citigroup analyst Keith Horowitz noted this in a research note he put out on Goldman Sachs. All in all, people will be watching trading activity very carefully. Any kind of an offset from commodities will be welcome, but it remains to be seen if the offset will be significant.

For more:
- here's the article

Related Articles:
JPMorgan poised to become the King of Trading  
Citigroup, an investment banking power?  
Goldman Sachs earnings surprisingly weak